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Corporate governance and abnormal returns from M&A: A structural analysis

Tarcisio da Graca (tbdg@uqo.ca) and Robert Masson (rtm2@cornell.edu)
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Tarcisio da Graca: Université du Québec (Outaouais)
Robert Masson: Cornell University

RePAd Working Paper Series from Département des sciences administratives, UQO

Abstract: A structural event study methodology accounts for the interaction of two M&A effects: synergy (total value) and dominance (bargaining power). This interaction jointly (simultaneously) determines the parties’ abnormal returns. We propose an instrumental variable approach. An application in corporate governance illustrates of our methodology. We posit that M&A synergy effects correspond to changes in agency costs between target's management and target's shareholders; and the dominance effect corresponds to balance of power between acquirer and target during negotiations. Structural estimates indicate that more stable or entrenched directors generate higher value during normal operations but are softer negotiators when their firm becomes an acquisition target.

Keywords: Board entrenchment; E-index; event study; structural analysis; mergers and Acquisitions. (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2013-07-01
New Economics Papers: this item is included in nep-bec and nep-com
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